Tax: What SMEs need to know
What do SMEs need to consider?
The current landscape for SMEs is a challenging one; both energy bills and inflation more broadly still sit at uncomfortable levels and supply chains are disjointed in many sectors. While there is certainly a lot to think about, keeping on top of ever-changing tax rules can be a challenge.
As an SME owner, it’s important to ensure you're compliant, but also that you're not paying too much, or too little for what is applicable to your business. With plenty of changes introduced earlier this year, we are looking at crucial things that SMEs need to keep in mind when thinking about tax.
The biggest changes that businesses need to be aware of this year are those to corporation tax rates. As of April 2023, the main rate of corporation tax rose from 19% to 25% for businesses whose profits exceed £250,000 annually. This is applicable to all company profits, not just those that exceed the £250,000 threshold. For businesses whose annual profits are below £50,000 a ‘small profits rate’ of 19% now applies. For SMEs whose profits lie between these two bands, a taper system has been implemented which will see companies paying a marginal rate of 26.5% on profits that lie between £50,000 and £250,000.
With a multitude of nuances associated with the corporation tax changes, it's important to understand whether your business will be affected. It is always advisable to consult both an accountant and a tax adviser when dealing with these complex matters. There is also an array of useful tools available online which can help you crunch the numbers, for example the Bytestart Corporation Tax Increase Calculator.
The introduction of ‘full expensing’
Many UK SMEs will be aware that the super-deduction tax relief scheme, which allowed companies to claim 130% of their capital expenses as tax deductible, came to an end in March of this year. What they might not be aware of is the fact that this scheme was replaced with a similar one in the Spring Budget the same month. Its successor, ‘full expensing’ came into effect on 1 April this year and will run for three years, terminating on 31 March 2026. Full expensing is virtually identical to its predecessor, albeit somewhat less generous, allowing companies to expense 100% of qualifying capital expenditure, equivalent to 25p tax saving for every £1 spent against their annual taxable profits.
To learn more about full expensing, you can visit the government website to learn more.
The R&D tax credit
Another widely used government incentive which many UK SMEs can benefit from is the Research and Development (R&D) tax relief for small and medium-sized enterprises scheme. SMEs will qualify if they employ less than 500 staff and have an annual turnover of less than 100 million euros (or a balance sheet total under 86 million euros).
This programme works differently depending on whether your business turns an annual profit. If you are profitable, this scheme allows you to deduct an extra 86% of your qualifying costs from your yearly profit, as well as the normal 100% deduction granted by full expensing, to make a total of 186% deduction. If your company does not turn a profit, the scheme allows you to claim a repayable tax credit worth up to 10% of the surrenderable loss.
There are some more qualifying rules surrounding this relief, for example you cannot claim it if your R&D advance is in the social sciences, arts or humanities sector. Different rules also apply if business is a linked enterprise, partner enterprise or has already received state aid totalling 7.5 million euros.
To learn more about the Research and Development (R&D) tax relief for small and medium-sized enterprises scheme and to see if your business qualifies for support, you can visit the government website here.
Helpful Resources for SMEs
To ensure you're keeping up to speed on any changes to taxation or business regulation, it's advisable to check industry resources that regularly share updates for small businesses. Below, we have listed just a few resources which will help you stay up-to-date on relevant schemes and industry news: